oversight

Air Pollution: EPA Needs Better Information on New Source Review Permits

Published by the Government Accountability Office on 2012-06-22.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to the Chairman, Subcommittee
             on Oversight, Committee on
             Environment and Public Works,
             U.S. Senate

June 2012
             AIR POLLUTION

             EPA Needs Better
             Information on New
             Source Review
             Permits




GAO-12-590
                                                June 2012

                                                AIR POLLUTION
                                                EPA Needs Better Information on New Source
                                                Review Permits
Highlights of GAO-12-590, a report to the
Chairman, Subcommittee on Oversight,
Committee on Environment and Public Works,
U.S. Senate



Why GAO Did This Study                          What GAO Found
Electricity generating units that burn          The Environmental Protection Agency (EPA) does not maintain complete
fossil fuels supply most of the nation’s        information on New Source Review (NSR) permits issued to fossil fuel electricity
electricity and are major sources of air        generating units. State and local permitting agencies track the NSR permits they
pollution. Under the Clean Air Act,             issue, but EPA does not maintain complete or centralized information on permits,
such units are subject to NSR, a                despite a 2006 recommendation by the National Research Council that it do so.
permitting process that applies to (1)          EPA maintains several databases that compile data on draft and issued NSR
units built after August 7, 1977, and (2)       permits, but these sources are incomplete and thus cannot be used to identify all
existing units that undertake a major           of the NSR permits that have been issued nationwide. In addition, EPA has the
modification. Owners of such units
                                                opportunity to review and comment on every draft NSR permit issued by state
must obtain from the appropriate
                                                and local permitting agencies, but it does not compile data on whether the
permitting agency a preconstruction
permit that sets emission limits and
                                                permitting agencies address EPA’s comments in final permits. The absence of
requires the use of certain pollution           more complete information on NSR permitting makes it difficult to know which
control technologies. EPA oversees              units have obtained NSR permits or to assess how state and local permitting
states’ implementation of NSR,                  agencies vary from EPA in their interpretations of NSR requirements.
including reviewing and commenting
on draft permits issued by state and            Officials from EPA, state, and local agencies face challenges in ensuring that
local permitting agencies. GAO was              owners of fossil fuel electricity generating units comply with requirements to
asked to examine (1) what information           obtain NSR permits. Many of these challenges stem from two overarching
EPA maintains on NSR permits issued             issues. First, in some cases it is difficult to determine whether an NSR permit is
to fossil fuel electricity generating units;    required. NSR applicability depends on, among other factors, whether a change
(2) challenges, if any, that EPA, state,        to a unit qualifies as routine maintenance, repair, and replacement; and whether
and local agencies face in ensuring             the change results in a significant net increase in emissions. The rules governing
compliance with requirements to obtain          NSR are complex, however, and applicability is determined on a case-by-case
NSR permits; and (3) what available             basis. Second, it is often difficult to identify noncompliance—instances where unit
data show about compliance with                 owners made a major modification without first obtaining an NSR permit—partly
requirements to obtain NSR permits.             because owners of generating units determine whether a permit is needed, and
GAO reviewed relevant documentation             in many cases their determinations are not reviewed by permitting agencies or
and interviewed EPA, state, and local
                                                EPA. State permitting agencies generally issue NSR permits, but EPA typically
officials, as well as representatives
                                                leads enforcement efforts, since identifying instances of noncompliance involves
from industry, research, and
environmental groups.                           extensive investigations that go beyond the routine inspections conducted by
                                                state and local permitting agencies. EPA identifies NSR noncompliance through
What GAO Recommends                             a lengthy, resource-intensive process that involves reviewing large amounts of
                                                information on units’ past emissions and construction activities.
GAO recommends that EPA, among
other actions, consider ways to
                                                Available data on compliance, although incomplete, suggest that a substantial
develop a centralized source of data
                                                number of generating units did not comply with requirements to obtain NSR
on NSR permits issued to electricity
generating units. EPA expressed its
                                                permits. Complete NSR compliance data do not exist for two main reasons: (1)
commitment to filling gaps in its data          EPA has not yet investigated all generating units for compliance, and (2) NSR
systems, but disagreed with the                 compliance is determined at a point in time, and in some cases federal courts
actions GAO recommended. GAO                    have disagreed with EPA about the need for an NSR permit. Nonetheless, EPA
believes that its recommendations
                                                has investigated most coal-fired generating units at least once, and has alleged
would enhance oversight of NSR                  noncompliance at more than half of the units it investigated. Specifically, of the
permitting and enforcement.                     831 units EPA investigated, 467 units were ultimately issued notices of violation,
                                                had complaints filed in court, or were included in settlement agreements. In total,
                                                EPA reached 22 settlements covering 263 units, which will require affected unit
View GAO-12-590 or key components. For
more information, contact David C. Trimble at
                                                owners to, among other things, install around $12.8 billion in emissions controls.
(202) 512-3841 or TrimbleD@gao.gov, or          These settlements will reduce emissions of sulfur dioxide by an estimated 1.8
Frank Rusco at (202) 512-3841 or                million tons annually, and nitrogen oxides by an estimated 596,000 tons annually.
RuscoF@gao.gov.
                                                                                        United States Government Accountability Office
Contents


Letter                                                                                       1
               Background                                                                    6
               EPA Does Not Maintain Complete Information on Issued NSR
                 Permits or Track the Impact of Its Comments                                 7
               Regulators Face Challenges in Ensuring Compliance with NSR
                 Permitting Requirements                                                   12
               Available Data on NSR Compliance Are Not Complete but Suggest
                 Substantial Noncompliance                                                 19
               Conclusions                                                                 21
               Recommendations for Executive Action                                        23
               Agency Comments and Our Evaluation                                          23

Appendix I     Scope and Methodology                                                       27



Appendix II    Comparison of Available Databases of NSR Permits for Electricity
               Generating Units                                                            29



Appendix III   Concluded NSR Settlements                                                   30



Appendix IV    Comments from the Environmental Protection Agency                           32



Appendix V     GAO Contacts and Staff Acknowledgments                                      39



Tables
               Table 1: Comparison of Available NSR Permit Databases                       29
               Table 2: Concluded NSR Settlements Involving Electricity
                        Generating Units                                                   30


Figure
               Figure 1: New Source Review Permitting Process                                8




               Page i                      GAO-12-590 EPA's Implementation of New Source Review
Abbreviations

DOJ               Department of Justice
EIA               Energy Information Administration
EPA               Environmental Protection Agency
NSR               New Source Review
OECA              Office of Enforcement and Compliance Assurance
SCR               selective catalytic reduction




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Page ii                            GAO-12-590 EPA's Implementation of New Source Review
United States Government Accountability Office
Washington, DC 20548




                                   June 22, 2012

                                   The Honorable Sheldon Whitehouse
                                   Chairman
                                   Subcommittee on Oversight
                                   Committee on Environment and Public Works
                                   United States Senate

                                   Dear Mr. Chairman:

                                   The efficient and reliable operation of the electricity industry is critical to
                                   the health of the U.S. economy. Residential consumers rely on electricity
                                   to power their households, and electricity is a key input for businesses
                                   that produce trillions of dollars in products and services. The United
                                   States depends on a variety of fuels to generate electricity, including
                                   fossil fuels (coal, natural gas, and oil), renewable sources (such as wind,
                                   solar, and biomass), and nuclear power. Of these, fossil fuels have
                                   historically been the primary source of U.S. electricity because of their
                                   abundance, reliability, and relatively low cost. Yet in addition to providing
                                   about 70 percent of U.S. electricity, electricity generating units at fossil
                                   fuel power plants produce substantial amounts of harmful air emissions. 1
                                   In particular, fossil fuel-fired electricity generating units are among the
                                   largest emitters of sulfur dioxide and nitrogen oxides, which have been
                                   linked to respiratory illnesses and acid rain, as well as of carbon dioxide,
                                   the primary greenhouse gas contributing to climate change.

                                   Under the Clean Air Act, the Environmental Protection Agency (EPA)
                                   establishes national ambient air quality standards for six pollutants which
                                   states, primarily, are responsible for attaining. 2 States attain these
                                   standards, in part, by regulating emissions of these pollutants from certain
                                   stationary sources, such as electricity generating units. Numerous Clean
                                   Air Act requirements apply to electricity generating units, including New




                                   1
                                    Fossil fuel units are responsible for nearly all emissions of carbon dioxide, sulfur dioxide,
                                   and nitrogen oxides from the electricity generating sector.
                                   2
                                    EPA has set national ambient air quality standards for six pollutants, termed “criteria”
                                   pollutants: carbon monoxide, lead, nitrogen oxides, ozone, particulate matter, and sulfur
                                   oxides.




                                   Page 1                              GAO-12-590 EPA's Implementation of New Source Review
Source Review (NSR), a permitting process established in 1977. 3 Under
NSR, owners of generating units must obtain a preconstruction permit
that establishes emission limits and requires the use of certain emissions
control technologies. 4 NSR applies to (1) generating units built after
August 7, 1977, and (2) existing generating units—regardless of the date
built—that seek to undertake a “major modification,” a physical or
operational change that would result in a significant net increase in
emissions of a regulated pollutant. 5 Units built before August 7, 1977, are
not required to undergo NSR unless they undertake a major modification.
However, EPA’s regulatory definition of major modification excludes
certain activities; generating units can undertake these activities without
obtaining NSR permits or installing any additional controls. For example,
activities that qualify as “routine maintenance, repair, and replacement”
are not considered major modifications and therefore do not trigger NSR.

Congress allowed units that existed as of August 7, 1977 to defer
installation of emissions controls until they made a major modification in
the expectation that, over time, all units would either install such controls
or shut down, thereby lowering overall emissions. As we reported in April
2012, however, many older units—those that began operating in or before




3
 This report focuses solely on fossil fuel electricity generating units and major New Source
Review at those units, although NSR also applies to certain other major stationary sources
of air pollution, such as other industrial facilities. NSR also applies to minor modifications
at major stationary sources, as well as to new and modified minor sources (known as
minor NSR).
4
 In areas that meet EPA’s national ambient air quality standards—known as attainment
areas—the NSR permitting process includes a review for “prevention of significant
deterioration” to ensure that the emissions will not exceed maximum allowable increases
for three criteria pollutants: nitrogen oxides, sulfur dioxide, and particulate matter. In areas
that do not meet the standards—known as nonattainment areas—the permitting process
is known as “nonattainment NSR.” Throughout this report, the term NSR includes both
types of review.
5
 What constitutes a significant net increase in emissions depends on whether the
generating unit is located in an attainment or nonattainment area and the type of regulated
pollutant being emitted. For example, in all areas, a 100-ton-per-year increase is
significant for carbon monoxide, while a 40-ton-per-year increase is significant for nitrogen
oxides or sulfur dioxide. In attainment areas, increases of noncriteria regulated pollutants
can also be significant.




Page 2                               GAO-12-590 EPA's Implementation of New Source Review
1978—continue to produce electricity. 6 According to our analysis of EPA
data, 1,485 older units (43 percent of fossil fuel units) were still in
operation in 2010. 7 A substantial number of these older units did not have
emissions controls; for example, 1,201 units (74 percent of older units)
did not have controls for sulfur dioxide. In addition, 564 units (38 percent
of older units) did not have any controls for nitrogen oxides, and 1,277
units (86 percent of older units) had not installed selective catalytic
reduction (SCR) equipment, the type of control most effective at reducing
nitrogen oxides. The reduction in emissions from the use of emissions
controls can be substantial: SCR equipment, for example, can reduce
nitrogen oxides emissions by 70 to 95 percent. Emissions controls can
also be expensive; for example, installing SCR equipment in a typical
coal-fired generating unit could cost from $108 million to $129 million.

Throughout its history, NSR has been characterized by complexity and
controversy, involving disputes between EPA and industry about, among
other issues, whether certain changes to generating units qualified for
exclusion as routine maintenance, repair, and replacement. In December
2002, EPA finalized revisions to NSR regulations, including exemptions
for certain pollution control projects from NSR. These revisions were
intended to maximize operating flexibility, improve environmental quality,
and promote administrative efficiency, among other aims. In addition, in
October 2003, EPA finalized a rule that categorically excluded certain
activities from NSR by defining them as “routine maintenance, repair, and
replacement.” This rule was intended to provide more certainty to
generating units and permitting authorities. These NSR reforms, as the
two rulemakings were known, provoked considerable controversy. Some
states and industry groups agreed with EPA’s position, while a number of
public health and environmental groups, as well as a group of states
primarily from the Mid-Atlantic and Northeast, filed lawsuits challenging
the legality of the two rules. Since their issuance, two of the five




6
 GAO, Air Emissions and Electricity Generation at U.S. Power Plants, GAO-12-545R
(Washington, D.C.: Apr. 18, 2012). Analysis is limited to generating units that (1) listed a
fossil fuel as a primary fuel; (2) generated electricity in 2010; and (3) had a net summer
capacity greater than 25 megawatts, making them subject to EPA’s emissions monitoring
and reporting requirements.
7
 These 1,485 older units produced 45 percent of the electricity from fossil fuel units in
2010. The remainder was produced by 1,958 newer units (those that began operating
after 1978).




Page 3                              GAO-12-590 EPA's Implementation of New Source Review
provisions in the 2002 rule, as well as the 2003 rule, were struck down in
court. 8

As with many environmental laws, responsibility for implementing NSR,
including issuing NSR permits, generally rests with state and local
agencies, with oversight by EPA’s 10 regional offices and EPA
headquarters. Owners or operators of generating units wishing to make
major modifications must prepare and submit a permit application to the
appropriate state or local permitting agency before construction. The state
or local permitting agency determines if the application is complete;
develops a draft permit, if one is necessary; notifies EPA and the public of
the application; and solicits comments on the draft permit. The permitting
agency then issues a final permit, if merited, with responses to comments
it received. The permitting agency is to provide EPA with a copy of every
permit application, draft permit, and final permit.

EPA administers its NSR oversight and enforcement responsibilities
through its headquarters Office of Enforcement and Compliance
Assurance, as well as its 10 regional offices. This office monitors
compliance, identifies national enforcement concerns and priorities, and
provides overall direction on enforcement policies; the office also
occasionally takes enforcement action in conjunction with the Department
of Justice (DOJ), the agency responsible for handling enforcement cases
in federal court. In turn, EPA’s regional offices carry out much of EPA’s
NSR enforcement responsibilities, oversee states’ enforcement programs,
and implement NSR in certain areas, such as Indian country. 9 Since
1999, EPA has made enforcing NSR among coal-fired electricity
generating units a national enforcement priority and has reached several
settlements with owners of such units, which have resulted in the
installation of emissions controls, unit retirements, agreements to fund
environmentally beneficial projects, and tens of millions of dollars in civil
penalties.



8
  Other revisions to NSR regulations were proposed in 2006 and 2007 but were never
finalized, or, if finalized, EPA has stayed their effective date, is considering whether
changes to the regulation are necessary, or both. Similarly, a revision finalized in
December 2008 has been stayed.
9
 “Indian country” includes all land within the limits of an Indian reservation under the
jurisdiction of the United States government, all dependent Indian communities within the
borders of the United States, and all Indian allotments, the Indian titles to which have not
been extinguished.




Page 4                             GAO-12-590 EPA's Implementation of New Source Review
This report responds in part to your request for information on the
implementation and enforcement of NSR for fossil fuel electricity
generating units. Specifically, our objectives were to examine (1) what
information EPA maintains on NSR permits issued to fossil fuel electricity
generating units; (2) challenges, if any, that EPA, state, and local
agencies face in ensuring compliance with requirements to obtain NSR
permits; and (3) what available data show about compliance with
requirements to obtain NSR permits.

To respond to our objectives, we gathered information from EPA and from
selected state and local officials involved in implementing NSR. We
selected a nonprobability sample of nine states on the basis of (1) the
number of older electricity generating units in the state; (2) the quantity of
electricity generated by such units in those states; (3) the volume of sulfur
dioxide, nitrogen oxides, and carbon dioxide emitted by units in those
states; and (4) the region in which the generating unit was located. The
nine states we selected were: Alabama, Georgia, Indiana, Kentucky,
Missouri, New York, North Carolina, Ohio, and Pennsylvania. We
gathered information from EPA and these selected states on the status of
their NSR permitting programs and efforts to collect and maintain relevant
data. In addition, we spoke with officials from these states, as well as
officials at the four EPA regional offices that oversee these states and
EPA’s Office of Air and Radiation. In three of the states, some localities
are responsible for NSR permitting; we spoke with officials at two of those
localities. To assess compliance with NSR, we reviewed relevant
documents from EPA, other government agencies, academic and
research institutions, environmental organizations, and industry groups.
We also interviewed knowledgeable enforcement and compliance officials
from EPA headquarters and the four regional offices, as well as officials in
selected states and localities, to collect information on EPA’s efforts to
enforce NSR and track compliance among generating units. In addition,
we spoke with stakeholders from academic and research institutions,
environmental organizations, and industry groups on these topics.
Appendix I provides additional information about our scope and
methodology.

We conducted this performance audit from April 2011 to June 2012, in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.


Page 5                       GAO-12-590 EPA's Implementation of New Source Review
             Subject to EPA’s oversight, state and local permitting agencies generally
Background   administer NSR and operate under one of two arrangements. Under the
             first arrangement, state and local agencies receive “delegated authority”
             from EPA under which they implement EPA’s NSR regulations. Under the
             second arrangement, states and localities are also responsible for
             administering NSR, but instead of implementing EPA’s NSR regulations,
             state and local agencies develop plans, known as state implementation
             plans, that regulate the construction and modification of stationary
             sources. These plans provide assurances that the states and localities
             will have adequate personnel, funding, and authority under state law to
             carry out the plan, among other provisions. State implementation plans
             also must include NSR regulations that are at least as stringent as EPA’s
             NSR regulations, although states and local agencies are authorized to
             include more stringent or additional requirements. 10 States and localities
             must submit these plans, as well as any revisions to them, to EPA for
             approval. Once EPA approves the plans, they become federally
             enforceable requirements.

             Although this report focuses on NSR, the Clean Air Act and its
             implementing regulations subject electricity generating units to additional
             emissions control requirements. For example, the Acid Rain Program,
             created by the Clean Air Act Amendments of 1990, established a cap on
             the amount of sulfur dioxide that may be emitted by electricity generating
             units nationwide and authorizes those generating units to trade emissions
             allowances for sulfur dioxide. These facilities must also continuously
             monitor their emissions and report them to EPA. Furthermore, EPA has
             recently finalized or proposed several other regulations that will affect
             many fossil fuel generating units. These regulations include the (1)
             Mandatory Reporting of Greenhouse Gas rule finalized in 2009, which
             established reporting requirements for greenhouse gas emissions above
             certain thresholds; (2) Cross-State Air Pollution Rule, finalized in 2011,
             which limits sulfur dioxide and nitrogen oxides emissions from a number
             of states that contribute significantly to nonattainment or interference with
             maintenance of certain national ambient air quality standards in
             downwind states; (3) National Emissions Standards for Hazardous Air
             Pollutants from Coal- and Oil-Fired Electric Utility Steam Generating
             Units, also known as the Mercury and Air Toxics Standards, which



             10
               Some states, however, have laws preventing agencies from issuing more stringent
             regulations.




             Page 6                           GAO-12-590 EPA's Implementation of New Source Review
                        establish emissions limitations on mercury and other pollutants and was
                        finalized on February 15, 2012; and (4) Standards of Performance for
                        Greenhouse Gas Emissions for New Stationary Sources for Electric Utility
                        Generating Units, proposed in April 2012, which establishes new source
                        performance standards for emissions of carbon dioxide for certain new
                        fossil fuel electricity generating units. 11


                        EPA does not maintain complete information on NSR permits issued to
EPA Does Not            fossil fuel electricity generating units. State and local permitting agencies
Maintain Complete       track the NSR permits they issue, but EPA does not maintain data on
                        these permits in a complete and centralized source of information, which
Information on Issued   limits the agency’s ability to assess the impact of NSR. In addition, EPA
NSR Permits or Track    has the opportunity to review and comment on every draft NSR permit
the Impact of Its       issued by state and local permitting agencies, but the agency does not
                        compile data on which permitting authorities address EPA’s comments.
Comments                The absence of this information makes it difficult for EPA to measure the
                        impact of its comments and may impede its ability to assess how state
                        and local permitting agencies may differ from EPA in their interpretation of
                        NSR requirements.


EPA Does Not Maintain   EPA does not maintain complete information on NSR permits issued for
Complete Data on NSR    construction of new fossil fuel electricity generating units or for major
Permits                 modifications to existing units. State and local permitting agencies, which
                        issue NSR permits in most parts of the country, track the NSR permits
                        they issue. (Figure 1 describes the roles of state and local permitting
                        agencies and EPA in issuing NSR permits.) State and local agencies vary
                        widely in the types of data they collect on NSR permits and the systems
                        they use to compile the data. Some states maintain detailed information
                        on NSR permits in electronic form available on publicly accessible
                        websites. For instance, in seven of the nine states where we conducted
                        interviews, state officials maintain information online that can be used to
                        identify the electricity generating units that have received NSR permits, as



                        11
                          The Cross-State Air Pollution Rule and the National Emissions Standards for Hazardous
                        Air Pollutants from Coal- and Oil-Fired Electric Utility Steam Generating Units are currently
                        being challenged in court. A federal appeals court has stayed the effective date of the
                        Cross-State Air Pollution Rule while it hears the case. GAO is currently undertaking a
                        study on the effects of these two rules on reliability. The study is expected to be issued in
                        2012.




                        Page 7                             GAO-12-590 EPA's Implementation of New Source Review
                                       well as the requirements of the permits. 12 These data, however, are
                                       maintained in different formats across these states and cannot be readily
                                       compiled into a complete source of information on NSR permitting for the
                                       electricity generating sector.

Figure 1: New Source Review Permitting Process




                                       In addition to the data collected by state and local permitting agencies,
                                       EPA maintains several sources of data on NSR permitting for electricity
                                       generating units, but none of these sources are complete. Of the four
                                       EPA regional offices we assessed, three offices consolidated NSR
                                       permitting data for the states and localities under their oversight. 13 For
                                       example, one EPA regional office maintains a spreadsheet to track NSR
                                       permits issued over time. The spreadsheet contains information on (1) the
                                       type of source applying for the permit, (2) the project under consideration,
                                       (3) when a final permit is issued, and (4) what emissions control
                                       technologies are required. However, the information maintained by the
                                       EPA regional offices is in different formats and is not compiled into a
                                       complete, centralized repository of information on NSR permits issued
                                       nationwide.

                                       In 2006, the National Research Council recommended that EPA, in
                                       conjunction with states and localities, systematically collect data on the
                                       full range of NSR permits issued nationwide to stationary sources of air


                                       12
                                         Our review was limited to the NSR permits issued to electricity generating units; state
                                       and local permitting agencies may also maintain information on NSR permits issued to
                                       other stationary sources.
                                       13
                                         Regional offices also maintain information on the NSR permits issued by their office,
                                       such as to generating units in Indian Country, although officials said that regional offices
                                       rarely issue such permits.




                                       Page 8                              GAO-12-590 EPA's Implementation of New Source Review
pollution, including electricity generating units. 14 In its report the council
noted that such information could be useful to stakeholders and decision
makers for assessing the broader impacts of NSR regulations, or
potential changes to the regulations, on emissions, public health, and
energy efficiency. Asked how EPA had responded to this
recommendation, officials in EPA’s Office of Air and Radiation said it had
largely been satisfied by an agency database that tracks the emissions
control technologies that have been required by issued NSR permits. 15
However, the database is incomplete; EPA officials said it contains
information on approximately 50 percent of issued NSR permits and
therefore cannot be used, as recommended by the council, to identify all
NSR permits that have been issued nationwide. EPA officials suggested
that the database was not complete because some state and local
permitting agencies do not enter their information in a timely manner, and
others do not report the information at all. In addition, EPA officials noted
that the Clean Air Act requires only that states enter permit information for
sources in nonattainment areas. 16

EPA also has a centrally maintained database on NSR permits issued
nationwide for sources of greenhouse gases. EPA officials told us this


14
  National Research Council, New Source Review for Stationary Sources of Air Pollution
(Washington, D.C.:2006). In its report, the Council found that no centralized source
existed for information on NSR permits issued nationwide. It estimated—using data
provided to EPA by state and local permitting authorities that were preliminary,
unpublished, and not subjected to review—that from 1997 to 1999 there had been several
NSR permits issued for major modifications to existing sources in the combined electricity,
gas, and sanitary services sector: 38 for carbon monoxide, 30 for particulate matter, 46 for
nitrogen oxides, and zero for sulfur dioxide.
15
  The RACT/BACT/LAER Clearinghouse is a database maintained by EPA’s Office of Air
and Radiation, which contains information provided by state and local permitting agencies
on air pollution control technologies, including technologies required in source-specific
permits. The database contains information on over 5,000 air pollution control permit
determinations submitted by permitting agencies for several U.S. territories and all 50
states.
16
  See 42 U.S.C. § 7503(d). According to EPA officials, in many cases, EPA regional
offices also have planning agreements with states stipulating that the state must enter
data from all NSR permits into the database. Some regional offices specify a certain time
frame by which states must enter the data. These officials said that, as a general matter,
the planning agreements are tied to grant funding received by states, and EPA could
conceivably withhold funding if a state fails to meet a condition of the agreement.
However, with declining budgets and resources at state government levels, officials said
that entering data is not always a priority for states, or they may choose to defer entering
data until they believe they have a permit that is noteworthy.




Page 9                             GAO-12-590 EPA's Implementation of New Source Review
database would capture most NSR permitting activity for electricity
generating units because such units are major sources of greenhouse
gases, in addition to other pollutants. But this database too is incomplete:
it has been used only since 2011 and does not contain information on
whether the NSR permits include requirements for pollutants other than
greenhouse gases. EPA officials mentioned other means of tracking data
on NSR permits, but none of these sources can definitively identify the
units that have received NSR permits nationwide (see app. II for more
information on sources of data on NSR permits). 17

Because EPA does not maintain comprehensive information on the NSR
permits issued to fossil fuel electricity generating units across the nation,
the agency does not have complete data on which units have obtained
permits, limiting its ability to assess the scope and impact of NSR.
Without such data, EPA cannot fully assess what controls have been
required or estimate what emissions from generating units may have
been averted as a result of NSR requirements.

In addition, the absence of information on NSR permits hinders EPA’s
ability to efficiently target noncompliance. To identify potential targets for
NSR enforcement actions—units that may have made a physical or
operational change that resulted in a significant net emissions increase
without obtaining a permit—EPA officials we interviewed said they have
relied in part on continuous emissions monitoring data required under
Title IV of the Clean Air Act. For example, an unusual emissions decrease
followed by a sharp increase could signal a temporary plant shutdown to
install new equipment. In instances where noncompliance has been
suspected, EPA officials we spoke with said they have sometimes
consulted relevant state and local permitting authorities to ascertain
whether a suspected unit previously received an NSR permit. In other
cases, EPA officials told us they have obtained copies of NSR permits by
requiring unit owners to provide them through information requests, along
with documentation on previously completed work at a suspected unit—
making a centralized source of information on NSR permits unnecessary.
Nevertheless, without a centralized source of information on NSR
permits, EPA enforcement officials cannot readily identify whether a
generating unit has obtained an NSR permit, and under what terms,


17
  For example, EPA maintains a database aimed at tracking its reviews of draft state-
issued permits; the database does not, however, contain information on final permits or
their terms.




Page 10                           GAO-12-590 EPA's Implementation of New Source Review
                       unless they rely on unit owners or the efforts of state and local permitting
                       agencies to provide this information.


EPA Does Not Track     EPA does not track whether state and local permitting agencies
Incorporation of Its   incorporate the agency’s comments into final NSR permits for fossil fuel
Comments into Draft    electricity generating units. State and local permitting agencies have the
                       authority to make final permitting decisions, but as part of its oversight
Permits                responsibilities, EPA has the opportunity to review and comment on every
                       draft NSR permit submitted by state and local permitting agencies. 18 EPA
                       officials said that, when the agency elects to make comments, their
                       reviews often focus on whether and how the permitting authorities
                       conduct the required analyses—for example, whether an appropriate
                       analysis was used to support a proposed emissions control as the best
                       available control technology. The agency’s comments are first prepared
                       by regional offices and then reviewed by headquarters to ensure
                       consistency with comments previously issued by the agency. According
                       to EPA officials, EPA’s headquarters office maintains a database to track
                       the agency’s work and ensure that it delivers comments during the 30-day
                       public comment period. This database includes basic information on the
                       draft permits, but EPA does not use it to track the proposed terms of the
                       permits, the substance of the agency’s own comments, whether the draft
                       permits are finalized, or the extent to which state and local agencies
                       incorporated EPA’s comments into final permits.

                       Officials we interviewed in several EPA regional offices said they note the
                       responses of state and local permitting agencies to EPA’s comments, but
                       all said that they do not regularly report this information to EPA
                       headquarters. EPA officials also told us that regional officials notify
                       headquarters officials, including members of a working group on the utility
                       industry, when significant areas of concern arise on a final NSR permit for
                       a generating unit. They noted that this information is neither reported
                       systematically nor compiled in a centralized manner, adding that
                       quantifying the impact of all of its comments would be subjective and
                       time-consuming. However, without compiling any information on whether
                       state and local permitting agencies have incorporated its comments into
                       final NSR permits, EPA is limited in its ability to assess the impact of



                       18
                         EPA regulations require state and local permitting agencies to give the public at least 30
                       days to comment on draft NSR permits.




                       Page 11                            GAO-12-590 EPA's Implementation of New Source Review
                           these comments on state and local permitting decisions across the
                           nation. For example, EPA cannot assess the extent to which NSR
                           emissions control requirements imposed by state and local permitting
                           agencies may differ from those suggested by EPA in its comments. 19


                           In addition to a lack of comprehensive permitting data, EPA and state and
Regulators Face            local agencies face other challenges in ensuring that owners of fossil fuel
Challenges in              electricity generating units comply with requirements to obtain NSR
                           permits. Many of the challenges stem from two overarching issues:
Ensuring Compliance        (1) determining whether an NSR permit is required and (2) identifying
with NSR Permitting        instances where unit owners should have obtained NSR permits but did
Requirements               not. As a result, EPA’s enforcement efforts involve long, resource-
                           intensive investigations.


Determining When NSR       A major challenge to EPA, states, and local agencies in ensuring NSR
Applies Can Be Difficult   compliance is that it can be difficult for unit owners and regulators to know
                           whether an NSR permit is needed, because NSR’s rules governing
                           applicability are complex and because NSR applicability is determined on
                           a case-by-case basis. EPA and state officials we spoke with said that
                           NSR as it applies to new units is fairly straightforward, because newly
                           constructed units generally must obtain NSR permits before starting
                           operation. In contrast, determining what constitutes a major modification
                           of an existing unit, and, thus, what requires an NSR permit, is more
                           complex. Under NSR regulations, owners are to apply for an NSR permit
                           before making any physical or operational change that would result in a
                           significant net increase of emissions. These changes, such as adding
                           new equipment, must be evaluated in the specific context of the unit and
                           its intended use. State officials and industry representatives we
                           interviewed said it can be difficult to determine whether these activities
                           trigger NSR because the two steps for determining applicability—first,
                           whether the unit is making a physical or operational change and, second,
                           whether this change would result in a significant net increase of
                           emissions—are not categorically defined and have changed over time.




                           19
                            In states that have adopted their own NSR regulations, these NSR rules may differ from
                           EPA’s, although they must be no less stringent than EPA’s regulations.




                           Page 12                          GAO-12-590 EPA's Implementation of New Source Review
The first step for determining NSR applicability can be complicated
because the definition of “physical or operational change” excludes
activities that are considered routine maintenance, repair, and
replacement. NSR regulations, first finalized in 1978, contained no
description or definition of the “routine maintenance” exclusion, instead
relying on a case-by-case approach that involves weighing several
factors, including the nature, extent, purpose, frequency, and cost of
proposed activities. Federal courts, however, have issued inconsistent
decisions on whether the factors should be analyzed with respect to
industry practice or a particular unit’s history. In 2003, in part because of
concerns about the case-by-case approach, EPA finalized a rule that
categorically excluded certain activities from NSR by defining them as
“routine maintenance, repair, and replacement” to provide more certainty
to generating units and permitting agencies. Specifically, the rule
categorically deemed certain replacement activities to be routine
maintenance, repair, and replacement if certain conditions were met,
such as replacement activities’ costs not exceeding a specified threshold.
In 2006, however, a federal appeals court struck down this rule because it
was contrary to the plain language of the Clean Air Act.

As a result, a case-by-case approach is still used to determine which
activities qualify for the exclusion. Several state officials and industry
representatives we interviewed said that the case-by-case approach
makes it difficult to know when NSR applies. A number of industry
representatives also said that uncertainty around NSR applicability can
deter owners from making improvements to units that would improve
efficiency. One senior EPA enforcement official we interviewed, however,
noted that NSR regulations are written broadly to cover many disparate
industries and said it would not be possible for EPA to develop detailed
regulations tailored to each industry. One state official we spoke with also
said that attempts to more precisely specify what activities are considered
routine maintenance might not be worthwhile, since EPA’s previous
efforts to do so were struck down in court.

The second step in determining NSR applicability—assessing whether a
change results in a significant net increase in emissions—presents
additional complications. Like the routine maintenance exclusion,
regulations governing what constitutes an increase in emissions have
been subject to litigation, leading to changes in the process used to
measure emissions increases over time. For example, in 1992, in
response to a court decision, EPA finalized a regulation changing how
future emissions from generating units are to be calculated. Rather than
calculating future emissions based on a unit’s potential to emit, under the


Page 13                      GAO-12-590 EPA's Implementation of New Source Review
revised regulation, future emissions are calculated based, in part, on the
maximum emissions that can be generated while operating the unit as it
is intended to be operated and as it is normally operated. Some state
officials and industry representatives we interviewed said that calculating
emissions increases can be challenging because the regulations are
complex, and EPA’s interpretation has changed over time. NSR’s
complexity can be particularly difficult for owners of smaller generating
units who may lack the legal and technical expertise to properly comply
with NSR, according to an EPA official and industry representative we
interviewed. EPA officials acknowledged that the process is not always
simple, but they also noted that it is much easier for companies to make
these calculations than for permitting agencies to verify them, since
permitting agencies are less familiar with—and have less access to—
information about a generating unit, its activities, and its data systems,
than the companies.

According to several state officials and industry representatives we
interviewed, assessing whether a change results in a significant net
increase in emissions can also be complicated because EPA regulations
authorize certain emissions increases to be excluded from this
assessment—specifically, those emissions increases that are attributable
to growth in demand. 20 Several state officials we interviewed said that
some owners have had difficulty distinguishing between emissions
increases due to projected growth in demand and emissions increases
resulting from the change to the unit, a process made more difficult
because EPA has not offered clarification or guidance regarding this
exclusion. One senior EPA enforcement official disagreed with this
assessment, noting that utilities commonly employ models that help
project demand as a way to guide their operations and investment
decisions. According to this official, EPA’s approach is based on methods
already widely employed throughout the electricity sector.

EPA and state agency officials, who are responsible for verifying owners’
calculations when they apply for a permit or seek guidance on NSR
applicability, said that verifications are further complicated by other NSR
provisions that exclude certain activities from NSR. For example, a


20
  The portion of the generating unit’s emissions post-project that could have been
accommodated by the generating unit at a certain time before the proposed change, and
that are also unrelated to the project, including any increased utilization due to demand
growth, can be excluded from the calculation of emissions increases.




Page 14                           GAO-12-590 EPA's Implementation of New Source Review
change that significantly increases a generating unit’s emissions will not
trigger NSR if it does not cause a net increase in emissions. Specifically,
an NSR permit is not required if the increase in emissions resulting from a
change is offset by certain contemporaneous emissions reductions, a
process called “netting.” EPA has defined “contemporaneous” as within 5
years before construction on the change commences, although states
can define the term differently. Thus, an owner could compensate for an
emissions increase in a given year by subtracting emissions decreases
that were made in the previous 5 years, although any other emissions
increases during that 5-year period must also have been included in the
calculation. Several state agency officials we spoke with said that unit
owners often pursue this option so they do not have to obtain an NSR
permit and install costly emissions controls. Several EPA and state
officials we interviewed also said, however, that it can be difficult to verify
that calculations are valid, in part because they must rely on information
provided by the unit owners. Some of these officials said it can be difficult
to determine what types of emissions reductions and increases may be
aggregated together under the netting option. 21 One EPA regional office
official said that, overall, options such as netting complicate and lengthen
the permitting process because they require unit owners to submit
additional documentation that the regulator must in turn review.

To aid owners and regulators in determining when NSR should apply,
EPA and state officials identified several sources of available guidance,
including the following:

•    Consultations with state and local agencies. Before seeking a permit,
     owners of units can request assistance from state and local permitting
     agencies in determining whether NSR applies. Some state agency
     officials said that unit owners in their state regularly seek guidance,
     particularly on how to qualify for one of NSR’s exclusions. However,
     other EPA and state officials we spoke with said that such requests
     are uncommon; many unit owners may hesitate to contact a
     regulatory agency because regulators may have a different
     interpretation of NSR that could require them to install costly
     emissions controls.



21
  In September 2006, EPA proposed a rule clarifying how emissions decreases from a
project may be included in the calculation to determine if a significant emissions increase
will result. EPA did not finalize the rule.




Page 15                            GAO-12-590 EPA's Implementation of New Source Review
                         •   EPA’s 1990 draft NSR workshop manual. Several state agency
                             officials we spoke with said they rely on a draft EPA manual from
                             1990 issued as guidance for implementing the federal NSR permitting
                             process, although the manual was never finalized and has not been
                             updated.

                         •   Regionally maintained databases. Through one of its regional offices,
                             EPA maintains an online database containing more than 600 EPA-
                             issued policy and guidance documents. Several EPA and state
                             officials we interviewed said that the database was helpful in providing
                             current information on how to apply NSR, although one state official
                             said that these determinations are not always consistent.

                         •   Court decisions. Several EPA and state permitting officials we
                             interviewed said they rely primarily on court rulings for guidance on
                             interpreting NSR regulations to ensure that their determinations are
                             up-to-date.

                         EPA officials said that the agency’s ability to generate comprehensive,
                         nationwide guidance is limited because of the case-by-case nature of
                         NSR, ongoing litigation, and the variation in NSR requirements across
                         states. For example, some states and localities have adopted NSR
                         requirements that are more stringent than the federal regulations.
                         Furthermore, some states’ regulations differ because they have not
                         revised their state implementation plans to incorporate the 2002 NSR
                         reforms or had those revisions approved by EPA.


Identifying NSR          The second major challenge EPA and state and local agencies face in
Noncompliance Requires   ensuring compliance with NSR is that it is often difficult for regulators to
Long Investigations      identify noncompliance—that is, instances where owners did not obtain
                         NSR permits before making major modifications to their generating units.
                         According to several EPA officials we interviewed, identifying
                         noncompliance can be challenging because unit owners—not regulatory
                         agencies—have responsibility for determining whether they need an NSR
                         permit. Most owners do not ultimately obtain NSR permits before making
                         changes to their units, according to EPA officials we interviewed, because
                         the owners determine that the changes fall under one of NSR’s
                         exclusions, such as routine maintenance, or because they offset
                         emissions increases through netting. These unit owners are generally not
                         required to notify EPA or state or local permitting agencies when they use
                         these exclusions. Therefore, EPA would not review the owners’
                         determinations unless (1) the owner proactively sought a permit and the



                         Page 16                      GAO-12-590 EPA's Implementation of New Source Review
state or local permitting agency determined that an NSR permit was
required or (2) EPA initiated an investigation. In instances where a unit
did not apply for and receive a permit as required, it can take EPA several
years to identify the noncompliance and take corrective action. Moreover,
under an EPA rule finalized in 2007, known as the “reasonable possibility
recordkeeping” rule, a unit owner who determines that a change will not
trigger NSR is not required to keep records of the change and its resulting
emissions unless the owner believes there is a reasonable possibility that
the change could result in a significant emissions increase, and other
conditions are met. 22 According to one state official we interviewed, this
rule may complicate efforts to identify noncompliance because EPA and
state regulators generally have to retroactively determine whether an
NSR permit should have been obtained for past activities, and without the
benefit of company records, such a determination is difficult.

According to EPA and state officials we interviewed, state and local
permitting agencies are generally not well positioned to identify
noncompliance. State and local permitting agencies routinely inspect
units, but officials told us these inspections focus on compliance with the
terms of existing operating permits, not on whether an owner failed to
obtain a permit. Several EPA and state officials told us that, given the
complexity of most units, routine compliance inspections are not well
suited to detect NSR violations, in part because it is difficult to distinguish
work that might be considered a major modification from other work that
is routine. According to one EPA official, to identify noncompliance with
NSR, agency investigators need to identify what changes have already
occurred; gather information on the nature of these changes; and
determine whether NSR should have applied at the time the changes
occurred, considering all possible exclusions and other factors. EPA
officials we spoke with said that this process requires investigators to
analyze information on historic emissions and a large volume of records
on work conducted over the course of a unit’s life. According to these and
other EPA officials, such extensive review would not be possible during
routine compliance inspections. Several state and EPA officials we spoke
with also said that, given the complexity and case-by-case nature of NSR,
state and local agencies generally do not have the resources—and in
some cases expertise—to detect noncompliance. As result, several state


22
  This 2007 final rule was a clarification of a 2002 NSR reform regulation that the D.C.
Circuit Court remanded to EPA in 2005. EPA is currently considering whether changes to
the regulation are necessary and a litigating a case about the rule.




Page 17                           GAO-12-590 EPA's Implementation of New Source Review
officials we spoke with said they rely on EPA to identify instances of
noncompliance with NSR.

EPA has therefore taken a lead role in enforcing NSR, beginning in the
mid-1990s and continuing to the present. In 1996, EPA began targeting
older, coal-fired generating units for compliance assessments and, on the
basis of its investigations, alleged that several of the largest coal-fired
electricity generating units in the country had violated NSR provisions by
making major modifications without obtaining an NSR permit. In 1999 and
early 2000, after receiving a number of cases from EPA, DOJ filed seven
enforcement actions in U.S. federal courts in what is known as EPA’s
Coal-Fired Power Plant Enforcement Initiative. For their part, owners of
units targeted by the NSR enforcement initiative contended that, among
other things, their projects should have qualified for the routine
maintenance exclusion. Nonetheless, almost all of these cases ultimately
resulted in settlements mandating the installation of emissions controls
and civil penalties. Since then, EPA and DOJ have continued this
enforcement initiative and secured additional settlements for alleged
noncompliance with NSR. According to EPA, steps to develop an NSR
enforcement case include:

1. Section 114 requests. Under Section 114 of the Clean Air Act, EPA
   may obtain information from owners of generating units to determine
   whether violations have occurred. Such information includes detailed
   cost information on capital construction projects suspected to be NSR
   violations. According to EPA officials, collecting and reviewing such
   information can take several months to over a year.

2. Settlement negotiations. After reviewing generating units’ records,
   EPA determines whether NSR violations have occurred. If EPA
   determines that the unit is not in compliance, it will notify owners of
   generating units and encourage the owner to install emissions
   controls. EPA initially tries to resolve noncompliance through a
   settlement.

3. Referral. If settlement negotiations are unsuccessful, EPA will
   determine whether enough evidence exists to refer the case to DOJ
   for potential litigation. DOJ then reviews the accumulated evidence
   and determines whether there is merit to file suit against the company.
   Before filing the case in court, DOJ generally discusses the matter
   with the owner in a further attempt to settle.




Page 18                      GAO-12-590 EPA's Implementation of New Source Review
                          According to EPA and DOJ officials, EPA’s investigations for NSR
                          compliance, and subsequent enforcement actions, take a long time to
                          conclude and involve substantial EPA resources. In instances where
                          EPA’s investigations have uncovered suspected violations, it can take
                          years to litigate a case or bring it to conclusion through a settlement.
                          Specifically, the 22 settlements resulting from EPA’s enforcement
                          initiative took, on average, 7 years to conclude. According to several
                          industry representatives we interviewed, these efforts have also placed a
                          large burden on owners and operators of generating units, given the
                          amount of information required on past activities at the unit.


                          Available data, while not complete, suggest that a substantial number of
Available Data on         generating units have not complied with requirements to obtain NSR
NSR Compliance Are        permits. Complete data on NSR compliance do not exist for two primary
                          reasons. First, EPA has not yet investigated all electricity generating units
Not Complete but          for compliance with requirements to obtain NSR permits. Second, NSR
Suggest Substantial       compliance is determined at a point in time, and EPA’s interpretation of
Noncompliance             compliance has, in some cases, differed from that of federal courts.
                          Nonetheless, EPA has investigated a majority of coal-fired generating
                          units, and data from these investigations suggest that a substantial
                          number of generating units have not complied.


Complete Data on Unit     From our review of relevant documentation and EPA-provided data, we
Compliance with NSR Are   identified two primary reasons why complete data on NSR compliance
Not Available             are not available. First, EPA has not yet investigated all generating units
                          for NSR compliance, and second, available data do not provide a
                          complete picture of compliance.

                          EPA has investigated most—but not all—coal-fired generating units for
                          compliance with NSR at least once. According to our review of EPA-
                          provided documents and data, EPA has investigated 831 generating units
                          at least once since it began its Coal-Fired Power Plant Enforcement
                          Initiative. These 831 units represent about 81 percent of all coal-fired
                          units that generated electricity in 2010 and about 24 percent of all fossil
                          fuel-fired units (those using coal, natural gas, or oil) that produced




                          Page 19                      GAO-12-590 EPA's Implementation of New Source Review
                           electricity in 2010. 23 Most natural gas units—as well as some smaller
                           coal-fired units—have not been investigated by EPA. According to EPA
                           officials we interviewed, the agency has focused most of its NSR
                           compliance efforts on large, coal-fired units because they produce
                           dramatically higher levels of harmful air emissions.

                           Data on units investigated by EPA are not conclusive because
                           compliance is determined at a point in time; therefore, subsequent
                           changes to the unit could affect its future compliance with NSR. NSR is
                           required each time an existing generating unit undertakes a major
                           modification. Thus, an owner of electricity generating unit that has
                           obtained an NSR permit in the past—or was subject to an EPA
                           investigation—is not exempt from the requirement to obtain an NSR
                           permit for any future major modifications. 24 Moreover, allegations of
                           noncompliance stemming from EPA’s investigations do not necessarily
                           mean that a violation has occurred, because in some cases federal courts
                           have ultimately disagreed with EPA about the need for an NSR permit.
                           Given these issues, it is difficult to provide a comprehensive assessment
                           of NSR compliance at any given time.


EPA Has Found              These limitations notwithstanding, data on generating units investigated
Noncompliance at a         by EPA shed some light on overall compliance with NSR among
Majority of Units It Has   electricity generating units. Among the 831 generating units it has
                           investigated through its Coal-Fired Power Plant Enforcement Initiative,
Investigated               EPA has alleged NSR noncompliance at a substantial number.
                           Specifically, EPA has alleged noncompliance—documented through
                           notices of violation, complaints filed in court, or settlements—at 467
                           generating units, around 56 percent of the units it has investigated. 25
                           These 467 units investigated by EPA represent approximately 45 percent


                           23
                              Analysis is based on a universe of 3,443 electricity generating units in the U.S. that (1)
                           listed a fossil fuel as a primary fuel, (2) had a net summer capacity greater than 25
                           megawatts, and (3) produced electricity in 2010.
                           24
                             Although units must undergo NSR review for major modifications, some of the
                           settlement agreements EPA has reached with electricity generating units include a
                           provision precluding EPA, in certain circumstances, from suing the owner for making a
                           major modification and not undergoing NSR.
                           25
                             In the settlements, companies generally denied the alleged violations and maintained
                           their compliance with the Clean Air Act but agreed to settle to avoid the costs and
                           uncertainties of litigation and improve the environment.




                           Page 20                             GAO-12-590 EPA's Implementation of New Source Review
              of coal-fired units that produced electricity in 2010, and about 14 percent
              of all fossil fuel-fired units that produced electricity in 2010. 26

              According to EPA, the Coal-Fired Power Plant Enforcement Initiative is
              perhaps the most comprehensive and coordinated enforcement effort
              under the Clean Air Act to date. The initiative has led to 22 settlements
              covering a total of 263 units, or approximately 32 percent of the units EPA
              has investigated. According to our analysis of EPA data, the settlements
              will require affected unit owners to install and operate emissions controls
              costing an estimated $12.8 billion in total and levy civil penalties totaling
              around $80 million. Some companies are also required to fund
              environmentally beneficial projects, such as restoring watersheds and
              forests in national parks. These settlements are projected to reduce sulfur
              dioxide emissions by more than 1.8 million tons annually and nitrogen
              oxides emissions by about 596,000 tons annually. 27 In some cases, EPA
              reached companywide settlements in which companies agreed to put
              emissions controls on units constituting most of their production capacity.
              Two of the largest settlements—with American Electric Power and the
              Tennessee Valley Authority—represent 105 units, around 40 percent of
              the total, and about $8.6 billion in control costs, or around two-thirds of
              the total. A senior Department of Justice official we interviewed said that,
              in addition to the 22 concluded settlements, 7 additional NSR cases are in
              various stages of litigation. See appendix III for more details on EPA’s
              concluded NSR settlements.


              Ensuring compliance with NSR presents significant challenges for EPA,
Conclusions   and state and local permitting agencies. Unit owners—not regulators—
              are responsible for determining when an NSR permit is needed, and,
              because of NSR’s complex requirements, these determinations are not
              always straightforward. The complexity and case-by-case nature of NSR
              requirements also mean that NSR violations are difficult to detect, once
              they occur. State and local agencies generally do not have the resources
              to identify NSR violations and therefore rely on EPA to enforce NSR.
              Although available data on NSR compliance are not conclusive, the



              26
                Analysis is based on a universe of 3,443 electricity generating units that (1) listed a fossil
              fuel as a primary fuel, (2) had a net summer capacity greater than 25 megawatts, and (3)
              produced electricity in 2010.
              27
                   These reductions are to be phased in over an agreed-upon time frame, often 10 years.




              Page 21                             GAO-12-590 EPA's Implementation of New Source Review
substantial number of generating units EPA investigations have allegedly
found to be noncompliant suggests that many generating units have not
obtained NSR permits as required. Addressing NSR’s complexity and
improving compliance could reduce the need for long and resource-
intensive enforcement actions and more effectively protect air quality by
averting emissions before they occur. Yet EPA’s ability to simplify NSR or
develop comprehensive, nationwide guidance is limited for several
reasons, including the case-by-case nature of NSR applicability, ongoing
litigation, and the variation in NSR requirements across states.

Nonetheless, EPA has an opportunity to improve its efforts by collecting
more comprehensive NSR permitting data. Several EPA regional offices
maintain some information on the NSR permits issued by the state and
local permitting agencies in their regions, but this information is in
different formats and not compiled by EPA into a complete and
centralized source of information on NSR permits issued nationwide, as
recommended by the National Research Council in 2006. More complete
information on NSR permitting would help EPA and external parties
gauge the extent to which fossil fuel generating units have obtained NSR
permits and help inform enforcement efforts that have already found
widespread alleged noncompliance.

In cases where unit owners apply for permits before making physical or
operational changes that would result in a significant net increase of
emissions, EPA plays an important role because it has an opportunity to
comment on every draft NSR permit under consideration by state and
local permitting agencies and to influence decisions about the appropriate
level of pollution control, among others. A key benefit of EPA’s
involvement in the permitting process is that the agency can review and
comment on permits issued in different geographic areas and assess
various aspects of draft permits, including the level of emissions control
required. Because emissions controls can cost owners and operators of
generating units hundreds of millions of dollars, EPA’s review of the
required level of emissions control is critically important. Although EPA
and headquarters staff devote resources to commenting on draft permits,
EPA does not track whether state and local permitting agencies
incorporate the agency’s comments. Without such information, EPA
cannot fully assess the extent to which state and local agencies
incorporate its comments in NSR permits or the extent to which emissions
control requirements imposed by state and local permitting agencies
reflect suggestions made by EPA in its comments.




Page 22                     GAO-12-590 EPA's Implementation of New Source Review
                      To help improve EPA’s implementation of NSR, we recommend that the
Recommendations for   EPA Administrator direct the entities responsible for implementing and
Executive Action      enforcing NSR—specifically, the Office of Enforcement and Compliance
                      Assurance, Office of Air Quality Planning and Standards, and EPA
                      regions—to take the following two actions:

                      •   Working with EPA regions and state and local permitting agencies,
                          consider ways to develop a centralized source of information on NSR
                          permits issued to fossil fuel electricity generating units, and

                      •   Using appropriate methods, such as sampling or periodic
                          assessments, develop a process for evaluating the effects of its
                          comments on draft NSR permits.


                      We provided a draft of this report to the Department of Energy, the
Agency Comments       Department of Justice, and Environmental Protection Agency (EPA). The
and Our Evaluation    Department of Energy said they had no comments on the report’s findings
                      and recommendations. The Department of Justice provided technical
                      comments, which we incorporated as appropriate. EPA provided written
                      comments, a copy of which can be found in appendix IV. In its written
                      comments, EPA agreed with the importance of having good systems for
                      tracking and compiling information to efficiently and effectively administer
                      its programs, while enhancing accountability and transparency, but
                      disagreed with the need for the actions called for in our
                      recommendations.

                      Regarding our first recommendation that EPA work with state and local
                      permitting authorities to consider ways to develop a centralized source of
                      information on permits issued to electric generating units, EPA said that it
                      believes it has a number of permit tracking mechanisms in place, and
                      raised four concerns about our recommendation. First, EPA said that it
                      has maintained a centralized permit information database for many
                      years—the RACT/BACT/LAER Clearinghouse, which is capable of
                      capturing and sharing information on NSR permits that have been issued.
                      However, EPA acknowledged that this database is incomplete—including
                      about half of issued NSR permits—primarily because, in some areas,
                      state and local agencies are not required to enter information about the
                      permits they issue. Nonetheless, EPA said it is taking steps to improve
                      participation. We continue to believe that comprehensive permitting data
                      would enable EPA, Congress, and other interested parties to better
                      understand the scope and impact of NSR.




                      Page 23                      GAO-12-590 EPA's Implementation of New Source Review
Second, EPA said that its regional offices track NSR permitting by the
states in their jurisdiction and that the agency believes it is most
appropriate for the regional offices, rather than headquarters, to be
responsible for this information. However, our work found that the tracking
of NSR permits by EPA’s regional office varied in completeness. For
example, of the four regions we included in our sample, one region had a
robust system for tracking issued NSR permits, and one had no system at
all. EPA also said that its regional offices provide oversight of state and
local agencies and that an EPA-wide compilation of permit data would be
redundant, add costs, and provide little benefit to its oversight function.
We continue to believe that a centralized source of complete information
on NSR permits would enhance EPA’s oversight of state and local
permitting agencies and help ensure consistency across regions. EPA
headquarters could build on the ongoing efforts of some regional offices
and develop more complete data using a simple, low-cost system. For
example, we found that two regional offices use a spreadsheet to compile
and maintain basic data on permits issued by state and local agencies.
Additionally, we believe that any costs incurred in developing more
comprehensive data should be considered relative to the benefits that
could accrue from having better information on the universe of permitted
facilities including, as noted by the National Research Council, the ability
to assess the impact of policy changes.

Third, EPA said that a centralized database of all NSR permits would not
help most members of the public because most members of the public
are interested in permits issued to specific facilities rather than the entire
universe of all permits issued. Our report focused on the importance of
more complete data to enhance programwide oversight of NSR permitting
and targeting of enforcement efforts. More complete data could potentially
assist the public and other interested parties in understanding the extent
of NSR permitting for individual facilities, but this was not the basis of our
findings and recommendations. We continue to believe that a centralized
source of permitting data is important for EPA’s oversight of state and
local permitting agencies and to enhance its enforcement efforts.

Fourth, EPA questioned the value of more comprehensive information in
targeting noncompliance with requirements to obtain permits. Specifically,
EPA said that identifying noncompliance involves targeting facilities that
should have obtained permits but did not and that information on facilities
that have obtained permits would not assist in these efforts. Moreover,
EPA said that getting data on noncompliant sources is time- and
resource-intensive. We continue to believe that compiling complete
information on facilities that have obtained permits could help identify


Page 24                      GAO-12-590 EPA's Implementation of New Source Review
facilities that have not obtained permits and enhance targeting of these
facilities for potential noncompliance. We also believe that understanding
which facilities have obtained permits as required could decrease these
time and resource demands because the agency would have a better
starting point for identifying noncompliance.

Regarding our second recommendation that EPA develop a process for
evaluating the effect of its comments on issued permits, the agency said
that its regional offices already do so and described the interactions
between these offices and state and local agencies during the permitting
process. EPA also said that its regional offices already conduct oversight
of state and local permitting agencies, including whether these agencies
adequately address EPA’s comments on draft permits. We acknowledge
these efforts in the report and believe that, as part of its overall oversight
of nationwide permitting efforts, EPA headquarters could benefit from a
broader and more comprehensive assessment of the extent to which its
comments on draft permits were adequately considered and incorporated.
Because the terms of issued permits can result in the installation of
pollution controls that cost hundreds of millions of dollars, it is important to
conduct higher level review of issued permits to identify variability in the
terms of issued permits across geographic areas. We therefore continue
to believe that implementing this recommendation would enhance
oversight of NSR permitting nationwide and that EPA has an opportunity
to build on the information already collected through the oversight
activities of its regional offices.

EPA also provided technical comments that we incorporated as
appropriate.


As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the appropriate
congressional committees, the Administrator of EPA, and other interested
parties. In addition, the report will be available at no charge on the GAO
website at http://www.gao.gov.




Page 25                       GAO-12-590 EPA's Implementation of New Source Review
If you or your staff have any questions about this report, please contact
David Trimble at (202) 512-3841 or trimbled@gao.gov or Frank Rusco at
(202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made key contributors to this report are
listed in appendix V.

Sincerely yours,




David C. Trimble
Director, Natural Resources and Environment




Frank Rusco
Director, Natural Resources and Environment




Page 26                     GAO-12-590 EPA's Implementation of New Source Review
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             To assess what information the Environmental Protection Agency (EPA)
             maintains on New Source Review (NSR) permits issued for fossil fuel
             electricity generating units, we gathered information from EPA and
             selected states on the status of their NSR permitting programs and efforts
             to collect and maintain permitting data. We selected a nonprobability
             sample of nine states on the basis of (1) the number of older electricity
             generating units in the state; (2) the quantity of electricity generated by
             such units in those states; (3) the volume of sulfur dioxide, nitrogen
             oxides, and carbon dioxide emitted by units in those states; and (4) the
             region in which the generating unit was located. 1 We obtained these data
             from the Ventyx Velocity Suite EV Market-Ops database, a proprietary
             database containing consolidated energy and emissions data from EPA,
             the Energy Information Administration (EIA), and other sources. To
             assess the reliability of the Ventyx data, we reviewed documentation
             provided by Ventyx and tested key variables to verify their accuracy and
             determined the Ventyx data to be sufficiently reliable for our purposes.
             The nine states we selected were Alabama, Georgia, Indiana, Kentucky,
             Missouri, New York, North Carolina, Ohio, and Pennsylvania. To assess
             how permitting information is collected and used, we reviewed relevant
             documentation from these nine states and from EPA. We also interviewed
             permitting officials from these nine states, the four EPA regional offices
             that oversee these states, EPA’s Office of Air and Radiation, its Office of
             Inspector General, and its Office of Enforcement and Compliance
             Assurance. In three of the states, some localities are responsible for NSR
             permitting; we also spoke with officials at two of those localities, which we
             selected on the basis of the number of older units in their jurisdictions.

             To examine what challenges, if any, EPA, state, and local agencies face
             in ensuring compliance by electricity generating units with requirements to
             obtain NSR permits, we reviewed relevant provisions of the Clean Air Act
             and NSR regulations; guidance and other information on implementing
             NSR maintained by EPA; and literature on NSR from government
             agencies, academic and research institutions, environmental
             organizations, and industry groups. We also interviewed knowledgeable
             officials and stakeholders from these agencies and institutions, as well as
             officials from the selected states and localities.


             1
              Because we used a nonprobability sample, the results we obtained from electricity
             generating units in these states are not generalizeable to such units in all states;
             nonetheless, these results did help us understand how NSR is implemented and enforced
             in different states.




             Page 27                         GAO-12-590 EPA's Implementation of New Source Review
Appendix I: Scope and Methodology




To review what available data show about compliance with requirements
to obtain NSR permits, we reviewed information published by EPA on the
estimated rate of noncompliance by industrial sectors. We also reviewed
information on EPA’s enforcement activities maintained by enforcement
officials in EPA’s Office of Enforcement and Compliance Assurance,
including (1) data on notices of violation sent to owners of generating
units alleging noncompliance with NSR; (2) lawsuits filed in court for
alleged NSR violations; and (3) information on the settlements concluded
by EPA and the Department of Justice with owners of generating units,
which ended or prevented lawsuits alleging noncompliance. To assess
the reliability of the EPA-provided data, we interviewed knowledgeable
agency officials and tested key variables to verify their accuracy. We
determined these data to be sufficiently reliable for the purposes of our
analysis. We also interviewed knowledgeable enforcement and
compliance officials from EPA’s headquarters Office of Enforcement and
Compliance Assurance and four regional offices.

We conducted this performance audit from April 2011 to June 2012, in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




Page 28                         GAO-12-590 EPA's Implementation of New Source Review
Appendix II: Comparison of Available
                                         Appendix II: Comparison of Available
                                         Databases of NSR Permits for Electricity
                                         Generating Units


Databases of NSR Permits for Electricity
Generating Units
Table 1: Comparison of Available NSR Permit Databases

Database                               Main purpose                                     Limitations
EPA control technology clearinghouse   To enable state permitting agencies, EPA         By EPA’s estimates, captures about
                                       regional offices, and regulated sources to       50 percent of permits
                                       assess EPA’s determinations on past NSR
                                       applications with respect to required
                                       emissions control technologies
State databases or permit records      To assist states in keeping records of their     Do not consolidate permits for regionwide
                                       own permitting activity                          or nationwide assessment; state systems to
                                                                                        track permits vary widely
Regional databases                     To inform regulated sources and the public on Data limited to regional jurisdiction;
                                       the status of permitting activity             completeness of data varies by region
Office of Air Quality Planning and     To assist EPA’s headquarters permitting          Tracks permits issued since 2011, after
Standards greenhouse gas permitting    division in tracking NSR permits related to      greenhouse gas rule took effect; may
database                               greenhouse gases following 2010                  exclude NSR permits for some activities,
                                       greenhouse gas rule                              such as coal handling, that affect
                                                                                        particulate matter but not greenhouse
                                                                                        gases
Office of Air Quality Planning and     To help EPA ensure consistency in its            Does not track whether draft permits are
Standards comment letter database      comments on draft permits and to meet            finalized, or their terms
                                       comment deadlines
Region 7 coal-fired utility database   To track permits issued to coal-fired            Database only covers newly constructed
                                       generating units from 2000 to 2010               coal-fired units for a limited time period
Region 4 combustion turbine database   To track permits issued to combustion turbine Database only covers combustion turbine
                                       units from the early 1990s onward             units, most commonly natural-gas-fired
                                                                                     units, and is no longer being updated
                                         Source: GAO analysis.




                                         Page 29                               GAO-12-590 EPA's Implementation of New Source Review
Appendix III: Concluded NSR Settlements
                                         Appendix III: Concluded NSR Settlements




Table 2: Concluded NSR Settlements Involving Electricity Generating Units

Dollar in millions
                                                                                                                 Emissions reductions
                                                                                                                    (tons per year)
                                        Date     Number                          Environmentally
                                  settlement     of units    Civil    Estimated        beneficial                    Sulfur      Nitrogen
Company                               lodged    involved penalties control costs        projects                    dioxide        oxides
                                                                                                             a
Tampa Electric Company             2/19/2000             10            $3.5        $1,000           $10.5            70,000        53,000
Public Service Enterprise Group    1/24/2002               4             7.4         337              9.25           36,194        18,807
                                         and
                                  11/30/2006
Alcoa, Inc.                        3/27/2003               3             1.5         330                2.5          52,900        15,480
Virginia Electric and Power        4/17/2003             20              5.3        1,200             13.9         176,500         60,400
Company
                                                                                                             b
Wisconsin Electric Power           4/29/2003             23              3.2         600              22.5           72,300        32,600
Company
Southern Indiana Gas and            6/6/2003               3             0.6          30                2.5           6,400         4,200
Electric Company
South Carolina Public Service      3/16/2004             12                  2       400                4.5          37,500        29,500
Authority
                                                                                                                             c             d
Illinois Power Company and          3/7/2005             10                  9       500                15          39,500        14,800
Dynegy Midwest Generation
Ohio Edison                        3/18/2005             29              8.5        1,100               25         171,500         31,050
                                         and
                                   8/11/2009
Alabama Power                      4/25/2006               2             0.1         200                4.9          22,790         4,940
Minnkota Power Cooperative         4/26/2006               3           0.85          100                 5           23,561         9,458
Nevada Power                       6/13/2007               4             0.3          60                0.4            N/A          2,300
Eastern Kentucky Power              7/2/2007               6           0.75          600                47           54,000         8,000
Cooperative
American Electric Power            10/9/2007             46                  15     4,600               60         654,000       159,000
Salt River Project                 8/12/2008               2           0.95          400                 4           14,303         6,789
Kentucky Utilities                  2/3/2009               1             1.4         135                 3          28,500          3,000
Duke Energy                       12/22/2009               4           1.75           85              6.25           35,000          N/A
Westar Energy                      1/25/2010               3                 3       500                 6          60,000         18,600
American Municipal Power           5/18/2010               4           0.85            0                15           30,600         3,160
                                                                                           e
Hoosier Energy                     7/23/2010               4           0.95          275                 5           19,827         1,845
Northern Indiana Public Service    1/13/2011             11              3.5         600                9.5          46,000        18,000
Company
                                                                                           f
Tennessee Valley Authority         4/14/2011             59                  10    4,000               350         225,757       115,977
Total                                                  263              $80       $12,777             $589        1,837,632      596,106
                                         Source: GAO analysis of EPA data.




                                         Page 30                                  GAO-12-590 EPA's Implementation of New Source Review
Appendix III: Concluded NSR Settlements




a
    EPA estimated the costs of environmentally beneficial projects at $10 to $11 million.
b
    EPA estimated the costs of environmentally beneficial projects at $20 to $25 million.
c
 EPA estimated reductions in sulfur dioxide emissions of 39,500 tons per year compared with 2003
emissions and 283,000 tons per year compared with 1999 emissions.
d
 EPA estimated reductions in nitrogen oxides emissions of 14,800 tons per year compared with 2003
emissions and 58,200 tons per year compared with 1999 emissions.
e
    EPA estimated control costs at $250 to $300 million.
f
    EPA estimated control costs at $3 to $5 billion.




Page 31                                    GAO-12-590 EPA's Implementation of New Source Review
Appendix IV: Comments from the
             Appendix IV: Comments from the
             Environmental Protection Agency



Environmental Protection Agency




             Page 32                           GAO-12-590 EPA's Implementation of New Source Review
Appendix IV: Comments from the
Environmental Protection Agency




Page 33                           GAO-12-590 EPA's Implementation of New Source Review
Appendix IV: Comments from the
Environmental Protection Agency




Page 34                           GAO-12-590 EPA's Implementation of New Source Review
Appendix IV: Comments from the
Environmental Protection Agency




Page 35                           GAO-12-590 EPA's Implementation of New Source Review
Appendix IV: Comments from the
Environmental Protection Agency




Page 36                           GAO-12-590 EPA's Implementation of New Source Review
Appendix IV: Comments from the
Environmental Protection Agency




Page 37                           GAO-12-590 EPA's Implementation of New Source Review
Appendix IV: Comments from the
Environmental Protection Agency




Page 38                           GAO-12-590 EPA's Implementation of New Source Review
Appendix V: GAO Contacts and Staff
                  Appendix V: GAO Contacts and Staff
                  Acknowledgments



Acknowledgments

                  David C. Trimble, (202) 512-3841 or trimbled@gao.gov
GAO Contacts      Frank Rusco, (202) 512-3841 or ruscof@gao.gov


                  In addition to the individuals named above, Michael Hix (Assistant
Staff             Director), Ellen W. Chu, Philip Farah, Cindy Gilbert, Jessica Lemke, Jon
Acknowledgments   Ludwigson, Nancy Meyer, Mick Ray, and Jeanette Soares made key
                  contributions to this report.




(361278)
                  Page 39                          GAO-12-590 EPA's Implementation of New Source Review
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